The Greece debt crisis: a case study of the ‘chicken game’

The album OK Computer by the British band Radiohead includes a song called ‘Airbag’. One of the verses reads, ‘In a fast German car; I’m amazed that I survived; an airbag saved my life.’ The song has certain applicability to current negotiations over the Greece debt crisis. The result of this seemingly impending car crash between the Eurozone and Greece, however, is yet unknown.

A popular model of game theory is what is called ‘chicken game’. This is a game in which two drivers drive towards each other on a collision course. If one driver swerves, he will be called a ‘chicken’. If neither does, the result will be equally destructive for both. A common tactic in that game is called pre-commitment. That takes place when one side signals its intentions convincingly before the game begins. For example, one driver can remove the steering wheel in order to convey his determination.

Last Sunday, in a vehement referendum, the Greek people voted against the proposals for a new bailout deal by the three institutions, namely the International Monetary Fund (IMF), the European Commission and the European Central Bank. The landslide vote of 61% of the population against the bailout deal was a staunch rejection of the austerity recipe that has not only failed to ameliorate the situation, but has in fact aggravated the economic figures and has brought misery to a large part of the population. The Greek government shares the view of many prominent economists who argue that the Greek debt is unsustainable. In fact, the IMF itself called last week for a debt write-off equivalent to 30% of Greek GDP. Indeed, the only way out of this vicious circle is a ‘haircut’ of the debt and a programme that would finance economic growth and employment.

On the other hand, for European elites, and particularly for the Germans, austerity is not just a policy. It is a dogma, from which no divergence is acceptable. The proposals presented to the Greek government prior to the referendum called for even more pension cuts, increases in VAT, and for an almost complete deregulation of the labor market. Sensibly, Greek prime minister Alexis Tsipras refused to put the final nail in the country’s coffin. The popular vote in the referendum reinforced his anti-austerity mandate but also had another consequence: it sets Greece on a direct course ahead, shifting the focus now to the response by the other player in this game of chicken.. Greeks have rightly rejected a recipe that clearly does not work, and the government is adamant not to sign a long-term deal without provisions about debt restructuring and economic growth.

The attention should now focus on the German car. Is Angela Merkel prepared to acknowledge that her recipe has failed? Or is she going to step on the gas, force Greece out of the common currency, and go down in history as the chancellor who dissolved the Eurozone?

Let us hope that the two sides focus their efforts in order to reach a viable agreement, instead of estimating how much impact the airbags could absorb in a collision.

Ioannis Nioutsikos is a PhD Candidate in the Department of War Studies at King’s College London. His thesis examines the resistance organisation of EAM-ELAS as a case study of guerrilla warfare. Follow him on Twitter @YNioutsikos